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Is Forex Really Manipulated? Here, How to Defend Yourself.

Hello Surfers,

Today I’d like to share my thoughts regarding a big potential scandal involving the Forex Market.

I’m talking about the Bloomberg article here:

Traders at some of the world’s biggest banks manipulated benchmark foreign-exchange rates used to set the value of trillions of dollars of investments, according to five dealers with knowledge of the practice.

Employees have been front-running client orders and rigging WM/Reuters rates by pushing through trades before and during the 60-second windows when the benchmarks are set, said the current and former traders, who requested anonymity because the practice is controversial. Dealers colluded with counterparts to boost chances of moving the rates, said two of the people, who worked in the industry for a total of more than 20 years.

The behavior occurred daily in the spot foreign-exchange market and has been going on for at least a decade, affecting the value of funds and derivatives, the two traders said. The Financial Conduct Authority, Britain’s markets supervisor, is considering opening a probe into potential manipulation of the rates, according to a person briefed on the matter.

It relates to traders of the 4 big boys ( Deutsche Bank, Citigroup, Barcalys e UBS) manipulating some Forex small markets.  I repeat, small.

This is one of the reasons why we maintain the same mantra: Do Not Trade Small Crosses.

Just focus on the BIG ONES, or better still, the biggest: EURUSD.

Why?

Because of the “Liquidity Chain” as I call it:

  1. The bigger a market is the more money is invested
  2. The more money invested, the more difficult manipulation becomes
  3. The more difficult manipulation, the “cleaner” & therefore reliable, the charts will be.
  4. The cleaner the charts – the easier to make money!

Do not fall into the brokers “Candy Store” trap. Simply – trade one market on an Intraday Strategy with small stop losses (less than 50 pips).

Because we only trade our Swing&Relax Strategy using bigger stop losses on a 4 hour chart, we can still safely trade GBPJPY and EURJPY without fear of manipulation

You can read the entire Bloomberg article here.

Davide Franceschini | Chief Trader

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One Response to “Is Forex Really Manipulated? Here, How to Defend Yourself.”

  1. Metagame Trader December 1, 2014 at 9:57 pm #

    Great article! Stop Loss hunting has been occurring for much longer than what people think. I used to not believe in it until recently. I continued to do more research on this subject, and it turns out that Hedge Funds, and other professional retail traders has been buying stop loss information from brokers for years! It is hard to argue with the ethics behind it, I mean should brokers be selling information about their clients? However, we are in the world of trading, and trading in the Forex world is like open warfare because it is not regulated by any government, so I just studied how these stop loss runs happened in real time on a chart it turns out that a lot of times hedge funds, and banks are in search of liquidity and if they are a major seller(or shorter) they will force the market up to hit stop losses so that they get a good fill(buy low and sell high) and just run the market down. I hope this helps.

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